Spotify held its latest investor day event yesterday, setting out its strategy in terms that it hopes investors will not just understand, but relish. One significant phrase used four times by CEO Daniel Ek in his opening and closing remarks is useful to understanding how Spotify sees itself in 2022 and beyond.
“We are building what we call internally the Spotify Machine… This is the Spotify Machine… what this Spotify Machine is capable of… the Spotify Machine: a unique, highly scalable machine that enables a unique platform”.
The phrase is something of a gift for critics of the streaming model – and more specifically of its impact on musicians not just in earnings, but in the pressures to create enough music to feed the streaming machine’s hungry algorithms. Naturally, Spotify’s view remains that its machine works for musicians, rather than chewing them up.
It’s still a very useful shortcut to understanding how Spotify is approaching its expansion beyond music – where we’d point you towards another small but important quote from Ek yesterday: “within audio, but also beyond” (our italics) – by applying the processes that have worked for music and podcasts.
On the big picture, Ek also reiterated Spotify’s “plan to get to a billion users” while also suggesting that “over the next decade, we will be a company that can generate $100 billion in revenue annually, and that we can achieve a 40% gross margin and a 20% operating margin” through that expansion, and sign up “more than 50 million artists and creators”.
“This machine we are building really enables us to continue to bundle these verticals and business models into a single consumer experience, and that benefits users, creators, ad partners, developers and Spotify itself,” was Ek’s pitch to investors.
“And each vertical we add enriches the consumer and creator proposition and it allows us to increase our margin over time with our fourth foundation: Marketplace products. And this makes our model more and more accretive… I’m not aware of any other company who has been successful in taking a multi-business model and multi-vertical approach within one user experience.”
(We also note with interest Spotify’s claim that audiobooks is “an annual opportunity of $70 billion dollars for us to expand and eventually compete for” where – against the dominant player, Amazon-owned Audible – “expect us to play to win”. That’s going to be quite the fight.)
There’s more from Spotify’s investor day in its own blog post, and the full video of the event, including some useful data points from its music business to chew on.
For example, the company isn’t backing down on defending its much-discussed ‘Discovery Mode’ promotional feature, claiming that it’s had “98% customer retention” in the last year, with artists in early tests having “increased their listenership by an average of 40%”.
Meanwhile, Spotify’s revenue from its ‘Marquee’ ads has grown by 224% year-on-year; its ‘Fans First’ mailouts have “generated more than $300 million in revenue for the music industry”; and its number of ‘artist discoveries’ (people listening to an artist for the first time) has grown from 10bn a month in 2018 to 22bn now.
They’re all carefully-chosen stats – or to continue the metaphor, cogs from the machine – to show investors that the processes that have taken Spotify to its current position in music and podcasts will work just as well for audiobooks and other verticals in the years ahead.
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